Breadcrumbs

Fixing holiday pay paid in error

ANSWER ID:33060

Sometimes holiday pay is paid in error because it is confused with annual leave. Here's the difference (see the Department of Labour website for more information):

Holiday pay

Holiday pay is measured in dollars, and is calculated at 8% of gross earnings since the employee's anniversary date.

Holiday pay accumulates through the year, then rolls into annual leave once the employee reaches their first/next anniversary. The holiday pay balance resets to zero and begins accumulating again for the next year.

Holiday pay is only ever paid out on two occasions:

  • The employee's final pay, or

  • Casual employees who receive it in their weekly pay (which must be clearly stated in the employee's contract)

Annual leave

Annual leave is measured in days of paid leave.

Employees are entitled to at least four weeks of paid leave each year, pro rata. The pay they receive for this leave is roughly equal to 8% of their gross earnings.

Employees receive their annual leave entitlements on each anniversary of their first day of employment.

 

Determining how to fix holiday pay paid in error

Choose the solution based on your scenario:

  • The employee has not passed their anniversary since the holiday pay was paid out.

  • The employee has passed their anniversary since the holiday pay was paid out.

 

Employee has not passed their anniversary

Configure the Pay Codes

  1. Go to the Maintenance command centre and click Maintain Pay Codes.

  2. Select the 'HP' (Holiday Pay) Pay Code.

  3. Click the General tab.

  4. Select the Allow the rate to be modified when entering pay details option as shown below.
    Image

  5. Repeat steps 1 to 4 above for the Annual Leave ( ANHL) Pay Code.

Process the correction pay

  1. Go to the Prepare Pays command centre and click Enter Pays.

  2. Double-click the employee whose pay requires correcting.

  3. Enter 1.00 in the Quantity field of the Holiday Pay (HP) Pay Code.

  4. Enter -500.00 (minus 500.00) in the Rate field of the Holiday Pay (HP) Pay Code.

  5. Enter the hours (Quantity) and the required Rate for the Annual Leave (ANHL) Pay Code, to work out how many hours this is, take the dollar value that was paid out in HP and divide it by the current AL Rate. For example $500/$20 = 25 hours.

  6. Finalise this pay to correct the Pay Code balances.

Employee has passed their anniversary

Fix holiday pay

Establish the employee's Holiday Pay Due amount by multiplying their gross earnings (since their last holiday anniversary) by 8%, and entering this amount in the Holiday Pay Due field on the Leave Details tab.

To find the employee's gross earning since their last anniversary, run the Period Report by Employee/Pay Code (Summary).

Image

Fix annual leave

Use the reports in Payroll to determine the annual leave an employee has taken, then work out what the employee would have been entitled to. You can then calculate the required adjustment to their annual leave balance.

Here's how to do it:

  1. Go to the Reports menu and choose Period Reports then choose by Pay Code Analysis.

  2. Select the following codes:

    • Annual Leave (ANHL)

    • Annual Leave Paid Out (ANHLCASH)

    • Holiday Pay (HP)

  3. Click Next.

  4. Select the relevant employee then click Next.

  5. Leave all pay periods selected then click Finish.

  6. Click Preview or Print.

  7. Add the total hours taken for Annual Leave (ANHL) and Annual Leave Paid Out (ANHLCASH) and make a note of the number.

  8. Take the total dollar value for Holiday Pay (HP) and divide it by the current Annual Leave rate to convert it into hours, and make a note of this number.
    This should have gone through as Annual Leave.

  9. Close the report and click Maintenance > Maintain Employees > Personal Details.

  10. Determine the employee’s current annual leave entitlement. This is calculated by taking the total amount of leave they're entitled to each year since their start date and deducting the number of leave hours the employee has taken.

    Example

    It's 2016 and we're calculating annual leave for an employee who started on 16/04/11.

    Each year since they started they were entitled to 160 hours of annual leave, and in the current year they are accumulating holiday pay which has not rolled into annual leave yet. We're going to calculate the total leave they have earned during their employment. Once we have that, we're going to deduct the leave they have already taken.

    So our calculation looks like this:

    16/04/11 to 16/04/12 = 160 hours
    16/04/12 to 16/04/13 = 160 hours
    16/04/13 to 16/04/14 = 160 hours
    16/04/15 to current date = holiday pay

    Our employee's leave entitlement is 480 hours (160 X 3) up to their last anniversary. Now we need to deduct the leave they have taken.

    In this case the leave reports tell us that they took the following hours:

    16/04/11 to 16/04/12 = 40 hours
    16/04/12 to 16/04/13 = 160 hours
    16/04/13 to 16/04/14 = 160 hours
    16/04/15 to current date = 40 hours

    This totals 400 hours of leave taken since the employee started.

    To determine the current entitlement, minus the leave taken from the total annual leave entitlement. In our example this is 80 (480 – 400).

  11. Click the Leave Details tab and enter the employee's total annual leave figure (as calculated above) into the Annual Leave Due as at field. The correct total will transfer down to the Current Annual Leave Due field.

  • Any annual leave the employee has taken since their anniversary date will be accounted for in the Annual Leave taken since field, as long as that leave was processed correctly through Payroll.

  • If the leave has been paid in advance, enter this as a negative value.

The annual leave balance will now be correct and you'll be able to continue processing your pays normally.